Small businesses across the UK are set to receive a significant financial boost, as the government unveils new plans to channel more than £7.4 billion a year directly into small and

medium-sized enterprises (SMEs) by 2028.

In a move aimed at strengthening local economies and accelerating growth, government departments have, for the first time, been assigned individual spending targets for SME procurement. The initiative forms a central pillar of the government’s broader Plan for Small Business, designed to increase opportunities for smaller firms and reduce reliance on large multinational contractors.

Under the new framework, each department will be required to publish annual progress reports, ensuring transparency and accountability. Those failing to meet their targets will need to outline clear corrective measures.

The Ministry of Defence is also expanding its contribution, with SME spending expected to rise by an additional £2.5 billion, reaching £7.5 billion by May 2028.

While the targets focus on direct spending, officials note that the true financial impact will be even greater, as billions more are expected to flow to small businesses through supply chains linked to government contracts.

The policy reflects a broader strategy to stimulate economic growth by empowering the private sector. By increasing access to public contracts, the government aims to help small businesses scale up, create jobs, and contribute more significantly to national prosperity.

This latest announcement builds on last year’s Small Business Plan, which introduced major reforms to tackle late payments—an issue long seen as a barrier to SME growth—and unlocked £4 billion in additional finance to improve access to funding. Key sectors expected to benefit include cyber technology, manufacturing, finance, and science.

Several SMEs have already secured major government contracts in recent years. Among them are UMi, a Durham-based company leading the Business Support Service, and Logan Construction in the South East, which has delivered multiple public sector projects.

The newly introduced targets are also intended to rebalance public spending, shifting more funds away from large international corporations toward local enterprises. Current departmental goals include allocating 40% of procurement spending to SMEs within the Department for Science, Innovation and Technology, 33% within the Department for Culture, Media and Sport, and 30% within the Cabinet Office. Nearly half of all departments have committed to directing over 20% of their spending to small businesses.

Overall, the reforms mean that for roughly half of government departments, at least one in every five pounds spent will go directly to SMEs—marking a substantial shift in public procurement strategy. 

Cabinet Office Minister, Chris Ward said: “This Government is backing SMEs and British businesses.  These ambitious spending targets will help ensure more Government contracts go to SMEs - keeping more money, jobs and opportunities in local communities. This will make a real difference - and is a statement of intent that this Government will pull every lever to support SMEs and drive growth”.

Small Business Minister, Blair McDougall said: “These new targets will ensure thousands of smaller businesses have greater opportunity to win lucrative government contracts and grow their businesses.

As outlined in our Plan for Small Business, increasing procurement spend with SMEs is a national priority to drive growth across the UK, and through today’s changes we are delivering on that”.

Policy Chair at the Federation of Small Businesses (FSB), Tina McKenzie said:  “Understanding exactly how much central government spends directly with small businesses is essential for holding departments to account.

The decline in direct SME spend since 2022 shows exactly why these targets matter - as well as the scale of the task ahead. It’s important that this announcement is a starting point for more ambitious future spending commitments for 2028 and beyond, particularly as overall spend among the biggest government departments like health, defence and education, is set to rise”.

Chief Executive of UMi, Nicki Clark said: “The advantages of enabling SMEs to access publicly procured opportunities is well understood, so the momentum and practical change that is being created in achieving that through the new procurement act is really encouraging to see”.

Chair of Constellia, Rob Levene said: “Today’s announcement marks a pivotal moment for small businesses across the UK who have felt locked out of public contracts due to cost or complexity.

More collaboration with SMEs will ensure better value, less waste and meaningful returns for communities, ensuring Government Departments reap the multitude of benefits offered by agile and innovative SMEs”.